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Friday, January 13, 2017

Stocks Close Mixed Ahead of Holiday

Charles Schwab: On the Market

Posted: 1/13/2017 4:15 PM ET

Stocks Close Mixed Ahead of Holiday

U.S. stocks finished the trading session mixed ahead of the long
holiday weekend which will keep markets closed on Monday in observance
of the Martin Luther King, Jr Day holiday. Energy stocks lagged on lower
crude oil prices, while financials led the advance following some
upbeat earnings from Dow member JPMorgan Chase & Co and Bank of
America. Treasuries and the U.S. dollar were lower and gold was slightly
higher. In economic news, retail sales came in just shy of estimates
and a read on consumer sentiment missed expectations.

The Dow Jones Industrial Average (DJIA) decreased 5 points to 19,886,
the S&P 500 Index was 4 points (0.2%) higher at 2,275 and the Nasdaq
Composite advanced 27 points (0.5%) to 5,574. In moderate volume, 745
million shares were traded on the NYSE and 1.7 billion shares changed
hands on the Nasdaq. WTI crude oil declined $0.64 to $52.37 per barrel
and wholesale gasoline was unchanged at $1.61 per gallon. Elsewhere, the
Bloomberg gold spot price rose $2.95 to $1,198.38 per ounce, and the
Dollar Index—a comparison of the U.S. dollar to six major world
currencies—was 0.1% lower at 101.21. Markets were mixed for the week, as
the DJIA decreased 0.4%, the S&P 500 Index shed 0.1% and the Nasdaq
Composite advanced 1.0%.

Dow member JPMorgan Chase & Co.
(JPM $87) reported 4Q earnings-per-share (EPS) of $1.71, including a
tax benefit that may be impacting comparability to the FactSet estimate
of $1.42. Revenues rose 2.0% year-over-year (y/y) to $24.3 billion,
compared to the projected $23.9 billion. Net interest margin improved,
fixed income trading activity topped estimates and the company reserves
for bad loans shrunk. JPM's Chairman and Chief Executive Officer Jamie
Dimon said the U.S. economy may be building momentum, while offering an
upbeat outlook for potential impact of President-elect Donald Trump's
incoming administration and noting that the company is "well positioned
to play our part." Shares have pared early gains.

Bank of America Corp.
(BAC $23) posted 4Q EPS of $0.40, north of the projected $0.38, with
revenues rising 2.0% y/y to $20.0 billion, versus the expected $20.8
billion. The company said net interest income improved, reflecting
benefits from higher interest rates as well as growth in loans and
deposits. However, fixed income trading activity missed estimates as
"things tapered off at the end of the year," after doing "very well" in
the first two months of the quarter. The company's Chief Financial
Officer Paul Donofrio noted that while the recent rise in interest rates
came too late to impact 4Q results, "we expect to see a significant
increase in net interest income in 1Q of 2017." BAC increased its
planned stock repurchase program for the first half of 2017 by $1.8
billion. BAC nudged higher.

Advance retail sales (chart)
for December rose 0.6% month-over-month (m/m), just below the Bloomberg
forecast of a 0.7% increase, and compared to November's upwardly
revised 0.2% rise. Also, last month's sales ex-autos were higher
by 0.2% m/m, south of expectations of a 0.5% gain, and following the
favorable revision to a 0.3% rise seen in the previous month. Sales ex-autos and gas were flat m/m, compared to estimates of a 0.4% increase, and versus November's upward revision to a 0.3% gain. The retail sales control group,
a figure used to help calculate GDP, was up 0.2%, compared to the
projected 0.4% rise, and compared to the prior month's negatively
revised flat reading. A solid gain in auto sales led the way, while
online shopping saw solid demand, furniture and building materials
gained ground and gasoline stations posted a respectable increase.
However, sales declined at department stores, food and beverage stores
and among food services and drinking places.

The preliminary University of Michigan Consumer Sentiment Index (chart)
dipped this month to 98.1, from the prior month's 98.2 level—which was
the highest since January 2004—and compared to expectations of a slight
increase to 98.5. The current economic conditions component nudged
higher m/m, while the outlook portion dipped. The 1-year inflation
estimate jumped from 2.2% to 2.6%, and 5-10 year inflation outlook
increased to 2.5% from 2.3%.

The consumer sentiment report suggests the momentum in consumer
spending, which does the heavy-lifting of the U.S. economy, will likely
continue and Schwab's Director of Market and Sector Analysis, Brad
Sorensen, CFA, offers a look at the consumer discretionary sector in his
latest Schwab Sector Views: Sectors and Politics.
Brad notes that the outlook for American consumer spending appears to
be improving, with consumer confidence rising and wages ticking higher.
However, spending on traditional retail items has been cautious and
competition among retailers may limit profitability. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

The Producer Price Index (PPI) (chart)
showed prices at the wholesale level in December were up 0.3% m/m,
matching expectations, and compared to November's unrevised 0.4% gain.
The core rate, which excludes food and energy, gained 0.2% m/m,
versus forecasts of a 0.1% increase and compared to November's
unadjusted 0.4% increase. Y/Y, the headline rate was 1.6% higher, in
line with projections, and the core PPI increased 1.7% last month,
versus estimates of a 1.8% increase. In November, producer prices were
1.6% higher and up 1.8% y/y for the headline and core rates,
respectively.

Please Note: All U.S. markets will be closed on Monday in observance of the Martin Luther King, Jr. Day holiday.

Europe higher as healthcare issues rebound, Asia mixed

European equities moved higher, with healthcare issues recovering from
yesterday's drop that came in the wake of U.S. President-elect Donald
Trump vowing in his first news conference on Wednesday since winning the
election to crack down on drug pricing. Financials led the charge as
the markets digest the plethora of key earnings results from the banking
sector in the U.S., while Italian banking concerns were held in check.
The markets also sifted through some mixed trade figures out of China,
which followed yesterday's upbeat lending statistics that added to a
recent string of stronger-than-expected data to buoy global economic
sentiment and fuel a rally in basic materials stocks. The euro ticked
higher and the British pound gained ground on the U.S. dollar, while
bond yields in the region moved mostly to the upside.

Stocks in Asia finished mixed on the heels of the declines in the U.S.
and Europe yesterday as Wednesday's press conference by U.S.
President-elect Donald Trump appeared to cool post-election optimism as
it lacked discussions of his proposed economic policies that have fueled
the late-2016 rally. The markets also digested some December trade data
out of China, which showed imports came in stronger than expected,
though exports decelerated solidly. The data comes after
late-yesterday's better-than-forecasted lending statistics for last
month. Mainland Chinese equities declined and stocks in Hong Kong rose.
Schwab's Jeffrey Kleintop, CFA, notes in his article, Happy Unrecession: The Alice in Wonderland economy, that while volatility may lie ahead for stocks, a prolonged bear market and recession seem unlikely for 2017.

Stocks finished the first full week of 2017 mixed, with some of the
post-election moves taking a step back as Wednesday's first news
conference as President-elect by Donald Trump lacked details of proposed
economic policies that have bolstered the late-2016 rally. The U.S.
dollar dipped from a multi-year high and Treasury yields were little
changed in choppy trading, while crude oil prices pulled back.
Healthcare issues, while finishing near the unchanged mark, took a wild
ride as pharmaceutical stocks sold off in the wake of Trump's presser as
he vowed to crack down on the industry. Technology stocks led to the
upside after lagging the financials, industrials and telecom sectors
since the November post-election push. However, real estate, energy and
telecom stocks saw some pressure. Economic data continued to suggest
continued momentum, but the NFIB Small Business Optimism Index stood out after jumping to the highest level since December 2004.

This sets the stage for a shortened next week, with a heating up 4Q earnings season continuing to vector some attention away from the economic calendar, which is poised to deliver the Consumer Price Index (CPI), industrial production and capacity utilization, the NAHB Housing Market Index, and housing starts and building permits. As noted in the Schwab Market Perspective: A Perfect Mix?,
the conditions for a continuation of the long-running equity bull
market appear to be intact. The recent digestion of gains since the
election is a healthy process as it forestalls a potentially dangerous
"melt-up" scenario, at least for now. Economic data and corporate
earnings growth are conspiring with a boost in consumer and business
confidence to ignite "animal spirits." Add in a Federal Reserve that is
slowly normalizing monetary policy, but still remains accommodative, and
we see a good mix for further equity gains. Manufacturing has rebounded
around the globe, and could continue on a positive trajectory in the
first half of 2017. Read more at www.schwab.com/marketinsight.

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